Argentina Investment Guide

ABSOLUTE gUIDE SERIESto Investment Property

Argentina

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ABSOLUTE gUIDE SERIES - ARgENTINA

Date of Publication: October 2008© Obelisk

5. Welcome to Argentina Dedicated to providing impartial information.

6. Economic Growth & Stability government intervention on the foreign exchange has stabilised the currency.

7. Currency & Banking The banking system is currently under reform.

8. Foreign Investment North America rates Argentina 15th as an investment destination.

9. Political Situation & Stability Democracy restored to the country in 1983.

10. Tourism Argentina is a developing, year-round holiday destination.

11. Infrastructure Large-scale projects underway in transportation and energy.

12 - 13. Property Market A stable market with no sign of decline in demand.

14 - 15. Secondary MarketHigh demand for both resale and rental properties.

16. Mortgage Market Scope for huge development to meet domestic and international need.

17. Market Risks Significant risk although balanced with good investment potential.

18. Purchase Process Argentina has an open market with no restrictions on foreign ownership.

19. Investment Costs Fees and taxes are not prohibitive.

20. Summary Investors are regaining confidence in the country.

21. Verdict Argentina remains resilient against the credit crunch.

22. Obelisk Advantage Obelisk approaches its projects purely from an investment perspective.

Contents

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BuenosAires

Mendoza

Cordoba

Rosario

SanJuan

Salta

CorrientesPosadas

SantaFe

Viedma

Puerto Santa Cruz

Ushuaia

San Carlosde Bariloche

Comodoro Rivadavia

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As the market leader for overseas investment property, we are committed to providing cutting edge information for property investors, one aspect that has earned us the award of International Property Specialist 2008 by Business Britain magazine.

We are therefore pleased to present our latest Property Investment guide to Argentina, an essential tool for the investor planning to buy property in this country. This guide forms part of the Obelisk Absolute guide Series, dedicated to providing impartial information about numerous investment destinations worldwide.

At Obelisk, we are only too aware of the importance of extensive research into an investment destination and, as part of our policy to offer investors the definitive service, this guide has been rigorously researched to

provide you with in-depth, clear-cut knowledge on the most important factors influencing your property investment decision in Argentina.

In this guide you will find recent economic performance and predicted growth, a profile of the current property market and its future potential, along with tourism trends and infrastructure improvements. The guide also includes information about Argentina’s mortgage market, the buying process and buying costs.

Obelisk’s Absolute guide to Argentina offers investors objective and authoritative information to facilitate an informed decision about investing in Argentina. We trust that you, as an investor, will find this guide indispensable.

Here’s to Successful Investing!

Argentina forms part of the Obelisk Absolute Guide Series, dedicated to providing impartial information to numerous property investment destinations worldwide.

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to ArgentinaWelcome

Economic Growth

& StabilityArgentina has experienced a strong rebound from the deep recession of 2001 to 2002 and subsequent years have seen gDP rise steadily to the level of 8.7% in 2007. The gDP forecast for 2008 is 6% and despite Argentina being affected by the US economic downturn, this figure is still higher than many European Union countries.

The government has achieved huge success in terms of reducing unemployment since May 2002 when it peaked at 21.5%. Unemployment in Q2 of 2008 was at 8% with forecasts of 7.8% for Q3 which is a historic low for the country.

Consistent economic policies are required to control rising inflation and this is an area being addressed by

the government, particularly in terms of state intervention. Inflation was at 8.8% in 2007 and itis currently forecast to rise to 9.3% in 2008.

The export market has experienced considerable growth in the last 5 years, reaching US$65,838 million in 2007 with a projected level of US$ 75,000 million in 2008. The key factors behind this performance are rising international prices, an expanding export capacity and a competitive exchange rate. It is not only primary commodities leading this boom but also manufacturing and value added services, such as professional consultancy and tourism, which are expanding at accelerated rates.

GDP Growth (2008 predicted): 6%

GDP Per Capita (2007): US$13,305

Unemployment (Q2 2008): 8%

Inflation (2007): 8.8%

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ABSOLUTE gUIDE SERIES - ARgENTINA ABSOLUTE gUIDE SERIES - ARgENTINA

Argentina’s currency is the peso (AR$). From 1992 to 2002, the peso was pegged to the US dollar (1 to 1) until being devalued by 30% in 2002 which led to recession in the country. The peso has since recovered considerably due to state intervention on the foreign exchange to maintain competitive rates.

The banking sector is supervised by the Republic of Argentina Central Bank and has maintained stability since the economic crisis of 2002. There still exists reluctance from the banks to lend to the private sector and lending represents just 13% of Argentina’s gDP, compared to Brazil with over 36%, and the majority of loans are short term. government policy prefers to keep interest rates on savings low to encourage spending and rates on borrowing high and this is reflected in high interest rates on borrowing of 10.7% and a mortgage rate of 11.63% (January 2008 figures).

Currency

& Banking

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Foreign Investment

Foreign Companies Investing in ArgentinaBayer CropScience, IBM, Mercedes, Nestlé, Oracle, Renault, Toyota, TNT Express.

Foreign direct investment (FDI) reached US$4.8 billion in 2006, but fell to US$2.9 billion in 2007. This is mainly due to a stalling confidence in Argentina’s investment potential in recent years and the country has not ranked in the FDI Confidence Index’s top 25 countries since 2002. However, Argentina’s reputation as an investment destination appears to be recovering and North American investors rate it 15th in the world.

To encourage foreign investment, the official National Investment Development Agency, ProsperAr, was created to optimise the investment environment in Argentina. Measures adopted include a non-restrictive

legal framework for FDI, equal opportunities for both international and domestic investors and no restriction on sector involvement. A number of tax incentives are in place and in addition, Argentina holds 19 bilateraltreaties for the avoidance of double taxation and 55 bilateral investment treaties for the protection and promotion of investments.

More than 1,000 overseas companies operate in Argentina, including half of Fortune 100 firms (the list of companies that lead the US economy), many of whom have over half a century of presence in the country.

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Democracy was restored to Argentina in 1983 after 50 years of instability and military regimes. A strong presidencial regime is supported by a bicameral congress, comprising a 257-member Chamber of Deputies and a 72-member, directly elected Senate. The current president is Cristina Fernández de Kirchner who won 45% of the vote in October 2007. The presidential term is 4 years with a mid-term electiontaking place in October 2009.

The political situation in Argentina has been destabilised by the government’s moves to generaterevenue by increasing export taxes. Intermittent industrial action has been taken by farmers who already face a worsening situation due to rising costs linked to oil price increases and the global financial crisis. Argentina is the world’s largest exporter of wheat, corn, beef and soya beans and the general feeling is that agriculture should be supported rather than penalised through taxation at this current time.

Political Situation

& Stability

Member of Mercosur: Since 1991

Political System: Presidential Democracy

Ruling Party: Partido Justicialista (PJ)

Next Election: October 2011

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TourismThe government of Argentina has a programme in place with the double aim of transforming the country into a quality tourist destination whilst protecting the environment. The ‘Federal Plan for Sustainable Tourism 2016’ has a budget of US$190 million, mainly allocated to improving the tourism infrastructure with particular emphasis on the country’s many national parks.

Ezeiza International Airport serves as the primary gateway to Argentina with many visitors arriving via cruise liners docking in Buenos Aires. There are a number of year-round holiday options available totourists including beaches, ski resorts and natural parks, and with projects in place to improve thetourism infrastructure, it is anticipated that visitor numbers will increase.

Visitor numbers continue to increase year-on-year and Q1 2007 figures improved by 6% for the same period of 2006. Close to half the tourists are from other South American countries, especially Chile and Brazil. In Q1 2008, tourist spending was up 41.5% on the same period of 2007.

Visitor Numbers (Q1 2007-latest available): 1.3 million

Tourism Expected Contribution to GDP (2008): 8.8%

Tourism Expected Contribution to Employment (2008): 10.5%

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InfrastructureUS$286 million investment allocated to upgrading the provincial road system.

US$400 million expansion of Ezeiza International Airport.

County Assistance Strategy Funds totalling US$4,000 million for infrastructure improvements.

US$4 billion investment for improving and upgrading energy supply.

The World Bank and other sources are funding US$286 million of investment in Argentina (2006-2012) principally to upgrade and expand provincial roads. Additional improvements to the transport infrastructure include construction of an international highway. Funding has also been allocated to flood protection for Buenos Aires involving the construction of two collection tunnels in the Maldonado basin.

A US$400 million project is underway to expand Ezeiza International Airport and completion is anticipated to be by 2010. Improvements include a new passenger terminal, a control tower, platforms for aircraft and

increased car parking facilities. Also included in this project is the construction of a fourth runway and im-provements to the existing third runway.

Infrastructural development is clearly the prime focus area in Argentina and projects include improving and upgrading energy supply. More than US$4 billion will be invested for the construction of gas pipelines and large scale construction of power plants and diversification of energy sources. The government plans to continue with the emphasis on improving energy and export infrastructure during 2009 to 2011.

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“The construction sector grew by 9% in the first 7 months of 2008 compared to the same period in 2007. New-builds in the residential market have seen a year-on-year increase of between 10% and 15% as at July 2008.”

Average Price Growth: 10% - 20%

Average Annual Rental Yield: 4% to 6% (subject to regional variation)

Property MarketSince the 2002 economic crisis in Argentina and the subsequent crash of the property market, the market has regained growth and reached maximum activity towards the end of 2005/early 2006. At the height of activity, around 10,000 properties were sold a month. During the second half of 2006 and 2007, activity stabilised to around 9,000 a month and experts believe this stability is likely to exist for the foreseeable future.

The construction sector grew by 9% in the first 7 months of 2008 compared to the same period in 2007. New-builds in the residential market have seen a year-on-year increase of between 10% and 15% as at July 2008. The first half of 2008 has also seen an increase of 20% in sales and demand compared to Q2 of 2007 and there are no signs of demand or prices falling.

The property market in Buenos Aires is currently buoyant with price increases of 18.7% in resale property and 21.6% in new build for the first 6 months of 2008. However, demand for properties by foreign investors has dropped in the capital which is largely due to the credit crunch and falling prices in other countries. Sales of high-end properties remain buoyant with competitive property prices in comparison with other markets.

The focus for new development in Buenos Aires is Puerto Madero and San Telmo with a number of residential projects underway. Innovative architecture is a feature of new construction in the capital and includes a project designed by Norman Foster.

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Secondary

MarketAs a result of previous currency instability, Argentinians prefer to exercise caution and invest in property rather than savings. Taking into account the shift in theconcentration of construction to infrastructural rather than residential projects, demand for resale property as an investment option continues to be attractive.

Buenos Aires saw a fall of 23% in the number of properties for sale during the first half of 2008 compared to the same period of 2007. This will ensure that demand for resale properties will remain high and underpin security of investment in the property market.

Another effect of the caution resulting from past and present economic instability is that Argentinians generally prefer to let properties rather than sell them. Rental supply in Buenos Aires has seen a year-on-year increase of 14.5% from January to July 2008. The rapid increase in house prices has left the market out of reach to many Argentinians, creating a high demand for rental properties and attractive opportunities for property investors. In parts of the capital, rental property owners can expect rental income worth 4% to 6% of the original purchase price per year.

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“Argentinians generally prefer to let properties rather than sell them. Rental supply in Buenos Aires has seen a year-on-year increase of 14.5% from January to July 2008.”

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Mortgage Market

Banks in Argentina have exercised caution since the recession of 2002 and are generally reluctant to lend for mortgages. The number of mortgages taken out every month has averaged around 600 for 2008, a figure which has not altered greatly since 2002. Due to weakened confidence in the banking system, Argentina’s cash economy has grown considerably and as a result, many Argentinians fail to meet mortgage lending criteria.

The uncertainty that has affected the banking sector, economy and currency means that foreigners rarely take out mortgages in Argentina. Equity release on an existing property is considered the most popular option for financing a property purchase in the country.

Property analysts believe that it is essential to develop the mortgage market in Argentina to offer more variety of products to a wider client base. The demographics of Argentina point towards an increasing demand for housing and mortgage finance as the majority of the population have low incomes and require creative solutions for home purchase.

Ken Thorkildson, Director of Obelisk Finance recommends that ‘until the Argentinian mortgage market develops and stabilises, foreign property investors are advised to consider other financing options such as equity release’.

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ABSOLUTE gUIDE SERIES - ARgENTINAABSOLUTE gUIDE SERIES - ARgENTINA

Market RisksArgentina has a history of economic instability. The government needs to address the issues of rising inflation and low credit availability to increase revenues from public expenditure. Because of the lack of confidence in the banking system, many Argentinians exist within a cash economy and so a clear picture of the country’s economic circumstances is difficult to obtain. The Economist forecasts lower gDP growth for the next 2 years although still much higher than many other countries. Investors should exercise caution in this market, although there is plenty of scope for promising investment returns.

It is broadly recognised that the government manipulates the consumer price index in order to keep official inflation statistics at low levels. Unofficial high inflation has led to reluctance to save money in the banking system and Argentinians prefer to invest in property rather than savings. This has a positive effect on the secondary market in terms of resale.

There is a degree of political instability in Argentina mostly due to the government policy of increasing revenues with export tax hikes. This has led to government unpopularity, particularly amongst agricultural workers who contribute the largest proportion of gDP and are hardest hit by export taxation policies. However, Argentina has now had more than 25 years of democracy and experts believe there is no danger ofa return to a military regime.

Since the peso was devalued in 2002, the currency has a history of ups and downs. Intervention on the foreign exchange has largely maintained strong exchange rates, which combined with budget surpluses from 2004 to 2007, brought about economic recovery to Argentina. Property purchases in the country are made in US dollars, which has more stability than the peso.

“Investors should exercise caution in this market, although there is plenty of scope for promising investment returns.”

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ABSOLUTE gUIDE SERIES - ARgENTINAABSOLUTE gUIDE SERIES - ARgENTINA

Purchase Process

Below is the standard purchase process in Argentina and issues that may affect a property purchase:

There are no restrictions on foreign ownership in Argentina, except for Argentine land near a foreign border, which requires additional paperwork and time to complete.

Foreigners are required to have a tax number (CDI), which can be obtained through a legal representative or in person at an Argentinian Police station.

The seller must obtain a domain certificate from the Real Property Register stating that the property is free of liens and encumbrances.

A “certificado catastral” must be obtained, detailing the footprint, boundaries and fiscal valuation of the property.

A certificate from the notaries’ association is required stating there are no local taxes on the property.

Both parties sign title deeds in the presence of a notary at which point notary fees, transfer tax and stamp tax are payable.

The notary then files the property transfer for registration with the Real Property Register when additional stamp tax is payable.

Argentinian laws and legal processes may be very different to what you are used to and Obelisk strongly recommends that independent legal advice be taken during a property purchase.

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Investment Costs

The costs of a standard property purchase in Argentina may include the following:

Stamp duty is set at 3% of the purchase price and is usually paid jointly by both parties.

Transfer tax is also set at 3% of the purchase price and is paid by the seller.

Notary fees are 1% to 1.5% of the purchase price and are paid by the buyer.

Additional stamp duty is payable upon registration of the property transfer and is 0.2% of the property price.

Capital gains tax is not levied, but is called Real Estate Transfer Tax which is payable only if the transaction is not subject to income tax. This tax is set at 1.5% of the sale price. It should be noted that exemption is granted if the profit from the sale is used to buy another property or build another property in Argentina within a year of sale. New builds must be completed within 4 years of sale in order to be eligible for tax exemption.

Residential individuals are subject to an annual tax on assets (personal property tax) of between 0.5% and 0.75%. Non-resident individuals are only taxed on their assets located in the country.

Argentina has several double taxation treaties in place, including the UK. Taxation is complex and subject to change, and expert advice is always recommended for purchase and ownership of Argentinian property.

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SummaryArgentina is a steadily growing economy with predicted gDP growth of 6% for 2008.

Foreign investment in Argentina is increasing and North American investors rate it 15th as an investment destination.

There are currently over 1,000 foreign companies in Argentina, many with over half a century’s presence.

Substantial investment is being allocated to improving tourism infrastructure.

Argentina is a year-round holiday resort with both beach and ski locations along with several national parks.

The property market is buoyant due to the Argentinian preference for purchasing property as an investment rather than saving with banks.

Demand for property remains high with little prospect of declining.

Rental demand is high particularly due to the cash economy that exists in the country.

The mortgage market is under pressure to be developed to meet the demand for housing from a population largely on low incomes.

Fluctuations in the peso do not affect investors as all purchases are required to be made in US dollars.


The following summary provides key highlights to consider when investing in Argentina’s property market:

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A major problem in Argentina is the country’s lack of political and economic maturity, and the current lack of stability means that property investment should be approached with caution. The banking sector is reluctant to lend and there is also currency instability.

However, once Argentina addresses these problems and its range of tourist attractions is expanded, the country’s investment potential should improve. Furthermore, as the property markets in Brazil and Uruguay expand and attract more foreign investor interest, the Argentinian property market should also receive a boost.

Based on thorough research we have carried out on Argentina, we at Obelisk believe that Argentina is currently an option to approach cautiously for overseas property investment, but it should be more worthwhile exploring in a few years time.

Verdict


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The Absolute guide Series Rating

Based on our extensive research, Obelisk has introduced a 5 star rating system to summarise the investment potential of a country. The availability of finance, economic stability, political stability, the strength of the local market to provide an exit strategy and the potential to earn from investment are the key criteria that determine the investment grade of each country.

Obelisk AdvantageVoted International Property Specialist of the Year 2008 by Business Britain magazine, Obelisk has been recognised as the authoritative voice within the industry and its clients benefit from the company’s uncompromising high standards and professionalism.

Obelisk has identified a simple and transparant purchase process for its clients as a simple, four step process:

The client chooses and reserves the unit that best suits their investment requirements, and Obelisk takes the client through a compliance procedure.

An independent lawyer, sourced and appointed for the client by Obelisk, will have already carried out full due diligence on the project. They will issue all purchase contracts and paperwork to the client.

On receipt of this contract, the client will sign and make the first payment. The lawyer will notify the client of all further payments when required.

The appointed lawyer will also represent the client in all aspects legally required within the country of purchase, ensuring that clients of Obelisk enjoy the benefits of simple and hassle-free real estate investment.

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For more information about Obelisk’s investment opportunities in Argentina, contact us now on [email protected],

visit our website at www.obeliskinternational.com or call us FREE on 0808 160 0670 (UK) or 1800 932 514 (IRE).

Awards Obelisk ‘International Property Specialist 2008’

DisclaimerThe material contained within this document has been prepared for information purposes only. Information contained herein is not to be relied upon as a basis of any contract or commitment. The information is not to be construed as an offer, invitation or solicitation to invest and opinions expressed are based on market conditions at the time of print and may be subject to change without prior notice. Information contained herein is believed to be correct, but cannot be guaranteed. In case of queries or doubt you should consult an independent investment adviser. No personal recommendation is being made to you and the past is not necessarily a guide to the future.

The brochure in its entirety – text, images, marks, graphics, logos, buttons, combinations of colours, and the structure, selection, ordering and presentation of its content – is protected by the legislation on intellectual and industrial property, it being forbidden to reproduce, distribute, publicly disseminate or transform it, except for personal private use. It is also forbidden to reproduce, relay, copy, assign or broadcast, in whole or in part, the information contained in this brochure, for whatever purpose and by whatever means, without written consent.

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Call us free from UK: Tel. 0808 160 0670 Call us free from Eire: Tel. 1800 932 514

For general and international enquiries contact us at: Tel: (0034) 952 820 319 Fax: (0034) 952 825 790

Alternatively you can email: [email protected] or visit: www.obeliskinternational.com

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